Syngenta Sanctions Sale

China Firm Offers $43 Billion

Syngenta says a purchase by ChemChina would offer more choice rather than consolidation in the seed industry. (DTN photo by Pamela Smith)

DECATUR, Ill. (DTN) -- After months of speculation, Syngenta announced Wednesday that its board will recommend shareholders accept a $43 billion cash offer from China National Chemical Corp., also known as ChemChina. However, the deal must still undergo scrutiny of shareholders and regulatory agencies.

Davor Pisk, Syngenta's chief operating officer, told DTN in a phone interview that the offer represents an acquisition and ChemChina will be acquiring 100% of Syngenta's shares. The buyout was unanimously supported by Syngenta's board of directors. "It is going to be done through a tender offer to our shareholders, and it is conditional upon two-thirds of shareholder acceptance and regulatory clearances as well," said Pisk.

Once the tender offer closes, Pisk said in a news conference, the arrangement could take the companies the rest of the year to finalize the deal, largely because of regulatory approvals will be needed in Europe, the U.S. and China. Pisk said ChemChina's intent in the future is to offer a new public offering for at least a share of Syngenta stock.

Switzerland-based Syngenta said in a statement that ChemChina's cash offer is worth the equivalent of $482 a share and includes a special dividend to shareholders if the deal goes through. Last year Syngenta rejected multiple bids from St. Louis-based Monsanto that amounted to $46.5 billion in cash and stock. A sweetened deal of a $3 billion reverse breakup fee wasn't enough to seal that deal.

Pisk indicated the proposals were less attractive because a high proportion of the value was in Monsanto shares rather than cash. Other challenging aspects of that potential merger included company relocation, tax inversion concerns and execution risks.

"The differences were pretty clear," Pisk told DTN. "We have a concrete proposal from ChemChina, which we never actually received from Monsanto. The Monsanto deal was predicated on us divesting our seed assets. It also required negotiating a lot of cross synergies between the companies," he said.

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"With this offer we have much greater clarity about continuing with our crop strategy. We continue to be based in Basel, Switzerland. Syngenta continues to be Syngenta -- with the same management and same commitment to our integrated portfolio and commitment to research and development that aimed at developing choice for growers."

He indicated a Monsanto merger would have likely resulted in less research dollars being spent, less innovation and ultimately less choice for U.S. growers in a consolidating industry -- his comments acknowledged the announcement in December that Dow AgroSciences and DuPont Pioneer plan to merge. He also mentioned that this sale will be less disruptive to company employees.

Beyond shareholder acceptance, national security concerns may influence the merger's chances of success, as well. A little-known federal agency, the Committee on Foreign Investment in the U.S. (CFIUS), has long scrutinized mergers between foreign and American companies. Syngenta is not an American company, but it has extensive business ties to the U.S., which could draw the attention of the CFIUS, especially given recent concerns over Chinese access to U.S. agricultural trade secrets. The merger announcement comes just days after a Chinese citizen pleaded guilty to stealing genetically engineered corn seed from DuPont Pioneer and Monsanto for China in 2013.

The China National Chemical Corp. is a state-owned enterprise that used to be called the Ministry of the Chemical Industry, according to the ChemChina website. ChemChina overall is ranked as the 265th largest company in the world, according to the Fortune Global 500 with $45 billion in revenues in 2015. The company has 145,000 employees, of which about 48,000 are outside of China.

ChemChina dominates the Chinese chemical industry and has a hand in several different industries with at least nine companies traded on the Chinese stock exchange. ChemChina's agrochemical corporation already operates at least eight different member companies.

ChemChina has a declared strategy of expanding into different downstream and upstream businesses and developing a more cutting-edge research and development program. Last month, ChemChina bought German machinery maker KraussMaffei for about $1 billion and took a 12 percent stake in Swiss energy trader Mercuria. In March it bought Italian tire manufacturer Pirelli.

China President Xi Jinping's has openly discussed plans to modernize the country's farms to keep up with food demand from a rising consumer class. However, the country has wavered on acceptance of GE traits, has turned back shipments of U.S. corn containing Syngenta traits that did not have Chinese import approvals and has been slow to sanction new GE traits. Today, Monsanto announced China had given the nod to its dicamba-tolerant soybean traits, but Pisk said Syngenta's own rootworm trait, Duracade, was not among the traits in this wave of approvals.

Pisk also said he did not think the change in ownership would affect the litigation over the MIR162 trait and exports to China that were blocked in 2014.

"We don't see this potential change in ownership having an impact upon the lawsuits," Pisk said. "Obviously, these cases are coming to trial, going through the normal process and they will be based on the facts as they existed at the time."

Pisk told DTN he hoped the purchase of Syngenta would lead to China being more accepting of current and future GE technologies. "I hope through this move we can begin to see much more common understanding of benefits of these technologies for agriculture -- a more level playing field which would lead to reduced trade tensions," Pisk said. "I think this could be the start of something very positive between China's agricultural trade relations and the U.S."

Monsanto, which had courted Syngenta last year, said in a statement that the Syngenta-ChemChina deal does not change Monsanto's corporate view. Monsanto stated the company has a plan to grow as a standalone company.

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